%1

The executive chairman of Ocwen Financial Corp. will resign as part of a legal settlement with New York’s financial regulator, the Wall Street Journal reported today. William C. Erbey, a billionaire who built Ocwen during more than two decades into the largest nonbank company handling mortgage payments and administering foreclosures, will step down by mid-January as part of a wide-ranging proposed consent order with the New York Department of Financial Services. Ocwen also will pay $150 million toward New York housing programs and aid to foreclosed homeowners and appoint two outside directors subject to state consultation. Under an agreement to be signed by Ocwen as soon as today, the company will acknowledge that it didn’t properly deal with distressed homeowners, may have saddled them with excessive charges from affiliated companies and failed to maintain adequate systems for servicing hundreds of billions of dollars in mortgages. Ocwen has been beset by allegations that it mishandled foreclosures and abused delinquent borrowers.

Assistant U.S. Attorney Richard Elias was leafing through a pile of JPMorgan Chase & Co. documents in 2012 when he found a memo in which one JPMorgan employee warned her bosses they were putting bad loans into securities being created before the financial crisis hit, according to a Wall Street Journal analysis today. The U.S. attorney’s office in Sacramento, Calif., soon started sending subpoenas to JPMorgan officials tied to the memo. Three months later, top Justice Department officials in Washington, D.C., told investigative teams across the country to hunt for similar ammunition in tens of millions of documents from other banks, especially Bank of America Corp. and Citigroup Inc. Elias’s discovery has delivered a whopping payoff so far: $36.65 billion, representing the cost of the government’s three separate settlements with the banks since late 2013, including the $16.65 billion deal with Bank of America in August that is the largest ever between the U.S. and a single company.

Bank of America Corp. and US Bancorp were sued by the agency that oversees federal credit unions, which claimed the banks failed as trustees over securities backed by home mortgages that defaulted after the 2008 credit crisis, Bloomberg News reported yesterday. The lawsuit, filed in Manhattan federal court, claims that Bank of America and US Bancorp served as trustees for residential mortgage-backed securities in 99 trusts with an original face value of $5.8 billion. They failed to review mortgage loan files for irregularities, missing “numerous problems,” including that the trusts “suffered enormous losses due to the high number of mortgage defaults, delinquencies, and foreclosures caused by defective loan origination and underwriting,” according to the complaint by the National Credit Union Administration Board.

A former Countrywide Financial executive who became a whistle-blower is collecting more than $57 million for providing evidence that helped federal prosecutors force Bank of America to pay a record $16.65 billion penalty in connection with its role in churning out shoddy mortgage and related securities before the financial crisis, the New York Times Dealbook blog reported yesterday. Edward O’Donnell reached an agreement last week with the government that enables him to collect part of the settlement that Bank of America agreed to pay in August in a deal with federal prosecutors and a number of state attorneys general, according to a court filing. The payment to O’Donnell arises from a federal lawsuit he filed under the False Claims Act earlier this year and which Preet Bharara, the United States attorney for the Southern District of New York, joined and used as the basis for pressing Bank of America to reach a deal.

According to CoreLogic, a leading provider in real estate data, New Jersey has the highest percentage of foreclosures among mortgaged homes at 5.5 percent, the Asbury, N.J., Park Press reported today. New York and Florida tied for second place at 4.1 percent. New Jersey also had the highest serious delinquency rate at 9.1 percent, according to the report, again surpassing both Florida and New York. However, the foreclosure rate in the United States is dropping: The recent report states that 605,000 homes in the United States were in some stage of foreclosure as of October, 2014, compared to 875,000 homes in October, 2013, a 30 percent decrease.

Mortgage servicer Ocwen Financial Corp. failed to ensure that its efforts to comply with a 2012 mortgage-abuse settlement were sufficiently independent from the company’s managers, an independent monitor said, the Wall Street Journal reported today. Joseph A. Smith Jr., a watchdog charged with measuring mortgage firms’ performance under the 2012 settlement, said yesterday that he has directed accounting firm McGladrey LLP to examine Ocwen’s work after an Ocwen employee alleged that the company’s internal review of mortgage-servicing practices wasn’t truly independent. After the 2012 settlement, firms were required to form review committees to oversee their adherence to the pact. Smith will release a report today on Ocwen detailing and validating problems originally raised by the unnamed Ocwen whistleblower. Smith also will review other mortgage-servicing firms.

Mortgage-finance companies Fannie Mae and Freddie Mac yesterday provided details of new low-down-payment mortgage programs that could reduce costs for first-time and lower-income home buyers, providing a boost to a segment largely absent from the housing market for the last few years, the Wall Street Journal reported today. The mortgage-finance companies and their regulator, the Federal Housing Finance Agency, said that the companies would start to back mortgages with down payments of as little as 3 percent, and that the loans would be available to first-time home buyers, borrowers who haven’t owned a home for at least a few years and to those who have lower incomes. The new loans could be most popular among high-credit-score borrowers who might have otherwise had to resort to pricey mortgages backed by the Federal Housing Administration.

Not engaging with borrowers who have missed payments may not seem like the strongest grounds for litigation against a bank, but that is the basis for an innovative lawsuit against U.S. Bank, according to an analysis in the New York Times DealBook blog on Saturday. The lawsuit focuses on a popular type of government-guaranteed mortgage that in fact requires that banks take distinct steps — like trying to arrange a meeting — when borrowers stop paying. The lawsuit is being brought by Advocates for Basic Legal Equality, a legal aid group. In a twist, the group is suing U.S. Bank in federal court in Ohio on behalf of the United States government, using the False Claims Act. This legislation, which dates to the Civil War, allows private citizens and groups to pursue legal action against companies and other entities for receiving payments from the government on false grounds. In this case, the legal aid group is focusing on mortgages that were guaranteed by the Federal Housing Administration, which is part of the United States Department of Housing and Urban Development. Specifically, the legal aid group asserts that U.S. Bank made false claims to the government by collecting payments from the FHA without also fulfilling the agency’s requirements that banks take certain steps to try to work with the borrower in default.

A client note from Moody’s Investors Service says that foreclosure timelines for private-label residential mortgage-backed securities loans backed by properties in California and Nevada, two non-judicial foreclosure states, will remain lengthy over the next year until gradually starting to decline in early 2016, HousingWire.com reported yesterday. Analysts with Moody’s cited procedural scrutiny on foreclosures as a result of Homeowner Bill of Rights laws are extending the amount of time that properties are in foreclosure and that repeat foreclosure filings are keeping servicers occupied with legacy foreclosure issues. Analysts say that the lengthy timelines are credit negative for private-label RMBS because more than 21 percent of all properties backing seriously delinquent loans are in the two states — 19 percent in California and 2 percent in Nevada.